* Marathon's Midwest refineries running "full out"
* Marathon says diesel demand up 2-3 pct year-on-year
* Gasoline demand to rebound if crude falls to $80 to $90
* Company will not sell E15 blend gasoline
NEW YORK, July 26 The head of Marathon
Petroleum Corp (MPC.N) is worried about U.S. fuel demand, but
that is not stopping him from running the company's Midwest
refineries at full tilt and seeking creative ways to access
Higher crude prices are hurting demand and especially
weighing on gasoline consumption, Gary Heminger, chief
executive of the new company, told Reuters on Tuesday.
"But we're running our plants in PADD II (Midwest) full
out," Heminger said in an interview.
Marathon -- the largest refiner in the Midwest with a
combined capacity of 602,000 barrels per day there -- is
well-positioned to take advantage of cheaper crude in the
region priced against U.S. benchmark West Texas Intermediate
Increasing production in the Bakken shale prospect in North
Dakota and higher imports of heavy Canadian crude into the
Midwest have created a supply glut at Cushing, Oklahoma, which
led to a wider discount for WTI crude against world benchmark
Aside from the wide spread, which hit a record high above
$23 in mid-July, Marathon says demand for distillates is robust
in the Midwest, helping to push refinery rates higher.
"We're balanced on diesel," Heminger said, adding products
from Marathon's Midwest refineries stay in the region and the
company is importing 800,000 to 900,000 bpd of products from
the Gulf Coast to cover excess demand.
Heminger also has a bullish outlook on distillate demand,
which he says is up 2 to 3 percent compared with a year ago. A
rebound in gasoline demand, however, is not possible until
crude falls to a range of $80 to $90 a barrel, he said.
Aside from its considerable refining assets in the Midwest,
Marathon Petroleum, just three-and-a-half weeks old, is also
the largest ethanol blender in the region.
Nonetheless, the company has no plan to go beyond 10
percent of ethanol in its gasoline mix, known as E10, fearing
liability for potential engine failure.
"I think we're going to hit the blending wall this next
year with E10," Heminger said, adding that only 4 percent of
engines in the United States can easily run higher blends such
as the 15 percent ethanol mix known as E15.
"We are not going to go out and sell E15 the way it is set
up today because the majority of cars' warranties are only good
for a 10 percent blend," he said.
Marathon says it is uniquely positioned to take advantage
of increasing North American crude production because of its
refineries' configuration, which allows for flexible feeds, and
its transport network, which includes some 150 barges that
carry up to 100,000 bpd of crude and other feedstock.
"We haven't had any problems sourcing crude," Heminger
His company is undertaking a $2.2 billion expansion at its
106,000-bpd Detroit, Michigan, refinery, which will add 15,000
bpd of capacity complete with a new coking facility by the
second half of 2012.
This will ramp up heavy Canadian crude intake at Marathon's
Midwest refineries. The company's expanded 464,000-bpd
Garyville refinery in Louisiana will also process heavy
Canadian crude carried to the Louisiana port by barge.
The Garyville refinery is aptly located to ship crude to
destinations in Latin America and now exports up to 65,000
barrels of oil products a day, according to company spokeswoman
To take further advantage of U.S. production, which rose to
an eight-year high of 5.4 million bpd in March, Marathon will
ship Bakken crude on railcars from the plains of North Dakota
to its Midwest refineries, Heminger said.
Heminger said Marathon does not see the move as a long-term
supply solution and expects speedy construction of pipelines in
the region. [ID:nN1E76P1C1]
(Reporting by Selam Gebrekidan, Matthew Robinson, Janet
McGurty, David Sheppard and Robert Campbell; Editing by Dale
Hudson and Lisa Shumaker)